In (Sort of) Defense of (Something Like) Property Taxes

Across the United States, a growing movement is challenging the legitimacy and fairness of property taxes. From the sunny beaches of Florida to the northern fields of North Dakota, there is a push in many states to either reform or entirely eliminate property taxes. This surge of discontent stems from two main grievances.

The first grievance centers around the perception that homeownership is merely an illusion; that homeowners are not truly owners but instead are ‘renting’ their properties from the government. Florida Governor Ron DeSantis articulates this sentiment by asking, “Is the property yours or are you just renting from the government?” Similarly, Pennsylvania State Representative Russ Diamond asserts that true personal liberty cannot be achieved if individuals cannot actually own real property.

The second major source of frustration is that property tax assessments are typically based on the presumed market value of the property rather than the owner’s financial situation or the actual cost of local services funded by these taxes. This creates a misalignment, which can feel particularly egregious for individuals such as seniors on fixed incomes. As one Minnesota resident pointed out, despite receiving a modest cost-of-living adjustment, their property taxes have drastically increased—by 10% in a single year and 48% over the past five years.

While these concerns are valid, the initial perception of property taxes as an unjust burden requires further examination.

Understanding Property Taxes as a Payment for Community Services

Fundamentally, property taxes are payments for a range of services and benefits provided at the local level, including schools, law enforcement, parks, and fire services. They are not merely a fee for occupying a home. For those who advocate for the abolition of property taxes, the question arises: if these taxes are eliminated, how will the essential services that communities rely on be funded? Most people are not willing to forgo these vital services; thus, understanding the true purpose of property taxes is critical.

The ideal scenario would involve charging for local amenities in a manner akin to how one pays for private services, such as renting a water park or hiring pest control. However, many local services function as “public goods,” which are inherently less straightforward to fund through direct payments. Public goods are characterized by being nonrivalrous—one individual’s use does not diminish another’s—and nonexcludable—those who do not pay cannot be easily excluded from benefiting. This intrinsic nature necessitates a method of funding, such as property taxes.

Reforming the Local Service Funding Methodology

The conventional method for financing local services has often been through property taxes, which can lead to misunderstandings and result in perceptions of unfairness. To address these issues and establish a system that is more equitable, several reform measures could be implemented.

First, renaming property taxes could change public perception. For example, when Margaret Thatcher reformed the “rates” system in the UK, she called it the “Community Charge.” This better captured the essence of the payment as a contribution to community services.

Another reform could involve decoupling the burden of these payments from the arbitrary fluctuations in property value. Instead, these costs should be tied to the actual expenses of providing local services. Implementing policies like a local Taxpayer Bill of Rights (TABOR), which limits government spending growth to a rate correlated with inflation plus population growth, could help manage and stabilize property tax burdens.

Once the expenses of local services are accurately calculated, there are various methods for distributing these costs among property owners. One approach is to maintain the current system, allocating costs based on property value. Alternatively, a more innovative solution, modeled after Thatcher’s proposal, might apportion costs by the number of residents in each household, closely resembling a private sector billing approach.

Evaluating Alternatives: Are Property Taxes the Best Option?

Many who advocate for abolishing property taxes still wish to retain the key services funded by such taxes. Various proposals exist to fund these services—from state government subsidies to new taxes on certain transactions such as remittances. However, the reality is that unless advocates of tax abolition also support cuts in government spending, they may simply be seeking to shift the burden elsewhere without reducing the total, leading us to the unsustainable ideal of a “free lunch.”

Interestingly, there is little enthusiasm amongst abolitionists for boosting other taxes, such as sales taxes, which could offset the loss of property tax revenues. It stands to reason that those benefiting from local services should contribute to their funding in a manner proportionate to their consumption.